As government restrictions on religion have steadily risen in Ethiopia, the country's global economic competitiveness has also become weaker. A recent study of global competitiveness and economic growth suggests the two might be connected.

Government restrictions on religion went from low-moderate in 2007 (2.6 on a scale of 10) to "high" (5.3) in 2012, according to a Pew Research study (see chart). According to the study, the increases were attributable to more instances of government restrictions or interference on a number of religious activities including: worship, literature/broadcasting, wearing of religious symbols, religious minorities, and the use of force in response to religious hostilities or threats.

Ethiopian Economic Growth: Sustainable?

Ethiopia’s economy grew by 9.7% , the tenth year in a row of robust growth. In 2012, Ethiopia was the twelfth fastest growing economy in the world, according to the African Development Bank Group. While this momentum is expected to continue for some time, it is expected to be at a slower pace because of constraints on private-sector growth.

Similarly, over the past decade, African countries have had relatively good economic growth performance. But average investment rates on the continent remain low relative to what is considered necessary to achieve national development goals, according to a new report by the United Nations Conference on Trade and Development (UNCTAD). UNCTAD also shows that they are also low relative to the average rate for developing countries. These facts suggest that Africa’s recent growth may be fragile and that it is unlikely to be sustained in the medium to long term if current trends continue. The key question, then, is how can African Governments catalyse investment for sustained and transformative growth?The UN Conference on Trade and Development (UNCTAD) has warned that African economies will not sustain the current high economic growth rates driven by consumption of goods and services, which has partly lowered the manufacturing capacity, reports African Manager. Speaking at the launch of UNCTAD's latest report, the Economic Development in Africa Report 2014, UNCTAD Director for Africa Taffere Tesfachew said the high economic growth rates recorded in Africa in the past few years have not had a positive effect, because it had been driven by consumption,reports African Manager. "This report provides useful insight which countries like Ethiopia can use," said Ethiopian Minister Mekonnen Manyazewal. "This report has given us the intellectual knowledge to address our current challenges." UNCTAD recommends that countries balance the contributions of consumption and investment to the growth sectors because consumption driven growth would not last,reports African Manager.

An Unexpected Connection: Religious Freedom?

Religious freedom is one of only three factors significantly associated with global economic growth, according to a new study by researchers at Georgetown University and Brigham Young University. The study looked at GDP growth for 173 countries in 2011 and controlled for two-dozen different financial, social, and regulatory influences.

As the world navigates away from years of poor economic performance, religious freedom may be an unrecognized asset to economic recovery and growth, according to this new study. The study examines and finds a positive relationship between religious freedom and ten of the twelve pillars of global competitiveness, as measured by the World Economic Forum’s Global Competitiveness Index (see example in chart).

The study, however, goes beyond simple correlations by empirically testing and finding the tandem effects of government restrictions on religion and social hostilities involving religion (as measured by the Pew Research Center) to be detrimental to economic growth while controlling for 23 other theoretical, economic, political, social, and demographic factors.

The new study also furthers previous work in the field, including The Price of Freedom Denied(by Brian Grim & Roger Finke, Cambridge, 2011). Grim & Finke's research showed that religious freedom is a key ingredient to peace and stability, as measured by the absence of violent religious persecution and conflict. This is particularly important for business because where stability exists, there is more opportunity to invest and conduct normal and predictable business operations, especially in emerging and new markets.

The new study observes that religious hostilities and restrictions create climates that can drive away local and foreign investment, undermine sustainable development, and disrupt huge sectors of economies. Such has occurred in the ongoing cycle of religious regulation and hostilities in Egypt, which has adversely affected the tourism industry, among other sectors. Perhaps most significant for future economic growth, the study notes that young entrepreneurs are pushed to take their talents elsewhere due to the instability associated with high and rising religious restrictions and hostilities.

Ethiopia's Falls in Global Competitiveness Despite Economic Growth

According to the World Economic Forum's latest 2013-14 report on global competitiveness, Ethiopia falls six places to 127th this year, facing challenges across all twelve of the pillars of competitiveness measured by the study. Indeed, in 2013-14, 86% of countries in the world were stronger in terms of economic competitiveness than Ethiopia, up from 75% just two years earlier (see chart).

The WEF report notes that Ethiopia "ranks above 100th only for its market size (67th) and the quality of its institutions (95th), although it should be noted that the assessment of institutions has been falling over recent years across almost all indicators, including property rights, ethics and corruption, undue influence, and government efficiency. Furthermore, the country’s goods (136th) and labor markets (108th) seem to be deteriorating, with more procedures and time required to start a business along with increasing concerns about the quality of labor-employer relations (121st), hiring and firing practices (99th), and the alignment between pay and productivity (125th). Ethiopia also requires significant improvements in the areas of infrastructure (124th), higher education and training (137th), and technological readiness (139th). On a more positive note, security—ranked 55th—is better than in many of its sub-Saharan peers, primary education with a net enrollment rate of 87 percent is comparatively good (although the quality of primary education is very low), and women account for a high percentage of the country’s labor force."

Protecting investors matters for the ability of companies to raise the capital they need to grow, innovate, diversify and compete, according to the World Bank's Doing Business index (2014, Ethiopia Profile, p. 55). If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through the purchase of shares unless they become the controlling shareholders. Doing Business measures the strength of minority shareholder protections against directors’ use of corporate assets for personal gain—or self-dealing. According to this measure, Ethiopia ranks very low in investor protection, on average scoring lower than the rest of Sub-Saharan Africa, and its other nearby neighbors (see chart).

While the World Bank does not make a direct connection with minority investment vulnerability and government containment of minority religious groups deemed to be a security threat, data from the Pew Research study indicate that the government has shown hostility to minority faiths in recent years.

Observations

While there is no smoking gun connection between rising religious restrictions and declining global competitiveness, the data suggest that any steps the Ethiopian government can do to reduce religious restrictions and tensions may be to the benefit of not only the nation's security but also its economy.